Nationalisation of banks

Steps taken before Nationalization of banks

1   The Reserve Bank of India (Established in April, 1935) was nationalized on 1 January 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948.  In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India". (The Government of India came up with the Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No.23 of 1965).

3.   The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.

Indira Gandhi, the then Prime Minister of India, expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalization. The nationalization of banks in India took place in 1969 by Mrs. Indira Gandhi the then prime minister. It nationalized 14 banks then. These banks were mostly owned by businessmen and even managed by them.

Before the steps of nationalization of Indian banks, only State Bank of India (SBI) was nationalized. It took place in July 1955 under the SBI Act of 1955. Nationalization of Seven State Banks of India (formed subsidiary) took place on 19th July, 1960.

After the nationalisation of banks in India, the branches of the public sector banks rose to approximately 800% in deposits and advances took a huge jump by 11,000%.

1955 : Nationalisation of State Bank of India.

1959 : Nationalisation of SBI subsidiaries.

1969 : Nationalisation of 14 major banks.

1980 : Nationalisation of seven banks with deposits over 200 crores.

In her broadcast to the nation on the eve of nationalisation of the fourteen leading Indian banks, she summed up the objectives of the nationalisation as, "The present decision to nationalise major banks is to accelerate the achievements of our objectives.

The purpose is to expand bank credit to priority areas which have hitherto been somewhat neglected. It also includes,

(i) The removal of control by a few

(ii) Provision of adequate credit facilities to agriculture, small industry and exports

(iii) The giving of professional bent to bank management

(iv) The encouragement of new classes of entrepreneurs, and

(v) The provision of adequate training as well as reasonable terms of service for bank staff ".

The second phase of nationalisation of Indian banks took place in the year 1980. Seven more banks were nationalised with deposits over 200 crores. Till this year, approximately 80% of the banking segment in India were under Government ownership.